Order Code IB87020
CRS Issue Brief for Congress
Received through the CRS Web
Campaign Finance
Updated May 19, 2005
Joseph E. Cantor
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Evolution of the Current System
Campaign Finance Practices and Related Issues
Enduring Issues: Overall Costs, Funding Sources, and Competition
Increased Campaign Costs
PACs and Other Sources of Campaign Funds
Competitiveness in Elections
Today’s Paramount Issues: Perceived Loopholes in Current Law
Bundling
Soft Money
Independent Expenditures
Issue Advocacy
527 Political Organizations
Policy Options
Proposals on Enduring Issues
Campaign Spending Limits and Government Incentives or Benefits
Changing the Balance Among Funding Sources
Promoting Electoral Competition
Congressional Efforts to Close Perceived Loopholes in Federal Election Law
Bundling
Independent Expenditures
Soft Money
Issue Advocacy
527 Activity
Legislative Action in Congress
108th Congress
109th Congress
LEGISLATION
Broadcast rates
PACs
Other FECA provisions
FOR ADDITIONAL READING

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Campaign Finance
SUMMARY
Concerns over financing federal elections
Congresses, the House passed the Shays-
have become a seemingly perennial aspect of
Meehan bill, but the Senate failed to invoke
our political system, long centered on the
cloture to allow a vote on the companion
enduring issues of high campaign costs and
McCain-Feingold bill.
reliance on interest groups for needed cam-
paign funds.
The 106th Congress did, however, agree
on an aspect of campaign reform, in passing
Rising election costs had long fostered a
P.L. 106-230, to require disclosure by certain
sense in some quarters that spending was out
tax-exempt political organizations organized
of control, with too much time spent raising
under section 527 of the Internal Revenue
funds and elections “bought and sold.” De-
Code. Such groups exist to influence elec-
bate had also focused on the role of interest
tions, but many had not been required to
groups in campaign funding, especially
disclose financial activity (to the FEC or IRS).
through political action committees (PACs).
In the 107th Congress, the Senate passed
Differences in perceptions of the cam-
McCain-Feingold, as amended, and the House
paign finance system were compounded by the
passed the companion Shays-Meehan bill), as
major parties’ different approaches. Demo-
amended. The Senate then passed the House
crats tended to favor more regulation, with
bill, which was signed into law by President
spending limits and public funding or benefits
Bush as the Bipartisan Campaign Reform Act
a part of past proposals. Republicans gener-
of 2002 — BCRA (P.L. 107-155),
ally opposed such limits and public funding.
constituting the first major change to the
nation’s campaign finance laws since 1979.
The 1996 elections marked a turning
point in the debate’s focus, as it shifted from
The 108th Congress found the political
whether to further restrict already regulated
community adjusting to the law that took
spending and funding sources to addressing
effect in November 2002 but whose
activities largely or entirely outside federal
constitutionality was not upheld until the
election law regulation and disclosure require-
Supreme Court’s McConnell v. FEC ruling in
ments. While concerns had long been rising
December 2003. Supporters vowed to
over soft money in federal elections, its
continue their efforts through such initiatives
widespread and growing use for so-called
as replacing the FEC with a new enforcement
issue advocacy since 1996 raised questions
agency, providing candidates and parties with
over the integrity of existing regulations and
broadcast discounts, and reforming the
the feasibility of any limits at all.
presidential public funding system.
Following 1996, reform supporters of-
In the wake of the 2004 elections, when
fered legislation whose primary goals were to
more than $400 million was raised and spent
prohibit use of soft money in ways that could
by 527 organizations outside of federal
affect federal elections and to bring election-
election law regulation, the 109th Congress is
related issue advocacy communications under
examining the role of 527 groups in federal
federal regulation. In both the 105th and 106th
elections.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
The House Administration Committee plans to hold a markup of H.R. 1316 (Pence-
Wynn), the 527 Fairness Act of 2005, on May 26, 2005. That bill takes a very different
approach to the 527 issue than S. 1053 (McCain-Feingold-Lott), the 527 Reform Act of
2005, which was reported by the Senate Rules and Administration Committee and placed on
the Senate’s legislative calendar.
BACKGROUND AND ANALYSIS
Evolution of the Current System
Today’s federal campaign finance law evolved during the 1970s out of five major
statutes and a paramount Supreme Court case. That case not only affected earlier statutes,
but it has continued to shape the dialogue on campaign finance reform.
The 1971 Federal Election Campaign Act (FECA), as amended in 1974, 1976, and
1979, imposed limits on contributions, required disclosure of campaign receipts and
expenditures, and set up the Federal Election Commission (FEC) as a central administrative
and enforcement agency. The Revenue Act of 1971 inaugurated public funding of
presidential general elections, with funding of primaries and nominating conventions added
by the 1974 FECA Amendments. The latter also imposed certain expenditure limits, struck
down by the Supreme Court’s landmark Buckley v. Valeo ruling [424 U.S. 1 (1976)].
In the Buckley ruling, the Court upheld the act’s limitations on contributions as
appropriate legislative tools to guard against the reality or appearance of improper influence
stemming from candidates’ dependence on large campaign contributions. However, Buckley
invalidated the act’s limitations on independent expenditures, on candidate expenditures
from personal funds, and on overall campaign expenditures. These provisions, the Court
ruled, placed direct and substantial restrictions on the ability of candidates, citizens, and
associations to engage in protected First Amendment free speech rights. The Court saw no
danger of corruption arising from large expenditures, as it did from large contributions, and
reasoned that corruption alone could justify the First Amendment restrictions involved. Only
voluntary limits on expenditures could be sustained, perhaps in exchange for government
benefits. Such a plan was specifically upheld in the existing presidential public funding
system, as a contractual agreement between the government and the candidate. The Court’s
dichotomous ruling, allowing limits on contributions but striking down mandatory limits on
expenditures, has shaped subsequent campaign finance practices and laws, as well as the
debate over campaign finance reforms.
In 2002, Congress enacted the Bipartisan Campaign Reform Act (BCRA) of 2002
(popularly known as McCain-Feingold or Shays-Meehan, for its Senate and House sponsors).
This statute made the most significant changes in the FECA since the 1970s, featuring
higher contribution limits, a ban on the raising of soft money by political parties and federal
candidates, and a restriction on broadcast ads by outside groups in the closing days of an
election. BCRA’s constitutionality was challenged in court but, in a decision that surprised
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many observers, was essentially upheld by the Supreme Court in its December 10, 2003
ruling in McConnell v. FEC.
Campaign Finance Practices and Related Issues
Since the mid-1970s, the limits on contributions by individuals, political action
committees (PACs), and parties, and an absence of congressional spending limits, have
governed the flow of money in congressional elections. Throughout the 1980s and much of
the 1990s, the two paramount issues raised by campaign finance practices were the
phenomena of, first, rising campaign costs and the large amounts of money needed for
elections and, second, the substantial reliance on PACs as a source of funding. Concerns
were also voiced, by political scientists and the Republican congressional minority, over a
third issue: the level of electoral competition, as affected by finance practices.
After 1996, the debate shifted considerably to a focus on the perceived loopholes in
existing law (a source of increasing debate since the mid-1980s). The PAC issue was largely
supplanted by more fundamental issues of election regulation, with observers finding new
appreciation for the limited, disclosed nature of PAC funds. Concerns over competition have
abated since Republicans won control of Congress in 1994, despite the perceived
incumbency bias in the finance system. The issue of high campaign costs and the
concomitant need for vast resources continues to underlie the debate, but even this was
almost overshadowed by concerns over the system’s perceived loopholes. Although these
practices were (largely) presumably legal, they may have violated the law’s spirit, raising a
basic question of whether money in elections can, let alone should, be regulated.
Enduring Issues: Overall Costs, Funding Sources,
and Competition
Increased Campaign Costs. Since first being systematically compiled in the
1970s, campaign expenditures have risen substantially, even exceeding the overall rise in the
cost of living. Campaign finance authority Herbert Alexander estimated that $540 million
was spent on all elections in the U.S. in 1976, rising to some $3.9 billion in 2000. Early
indications are that spending in 2004 greatly exceeded that level.
Aggregate costs of House and Senate campaigns increased eightfold between 1976 and
2000, from $115.5 million to $1.007 billion, while the cost of living rose threefold; the 2002
elections, however, recorded a drop in overall spending, to $936 million Campaign costs for
average winning candidates, a useful measure of the real cost of seeking office, show an
increase in the House from $87,000 in 1976 to $891,000 in 2002; a winning Senate race went
from $609,000 in 1976 to $4.9 million in 2002 (not adjusted for inflation).
The above data are cited by many as evidence that our democratic system of government
has suffered as election costs have grown to levels often considered exorbitant. Specifically,
it is argued that officeholders must spend too much time raising money, at the expense of
their public duties and communicating with constituents. The high cost of elections and the
perception that they are “bought and sold” are seen as contributing to public cynicism about
the political process. Some express concern that spiraling campaign costs has resulted in
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more wealthy individuals seeking office or determining election winners, denying
opportunities for service to those lacking adequate resources or contacts. Others see a
correlation between excessive, available money and the perceived increased reliance on
sophisticated, often negative, media advertising.
Not all observers view the high cost of elections with alarm. Many insist we do not
spend too much on elections and maybe don’t spend enough. They contrast the amount spent
on elections with that spent by government at all levels, noting that only a fraction of a
percent is spent to choose those who make vital decisions on the allocation of tax dollars.
Similarly, they contrast costs of elections with those on commercial advertising: the nation’s
two leading commercial advertisers, Proctor & Gamble and General Motors, spent more to
promote their products in 1996 ($5 billion) than was spent on all U.S. elections. In such a
context, these observers contend, the costs of political dialogue may not be excessive.
High election costs are seen largely as a reflection of the paramount role of media in
modern elections. Increasingly high television costs and costs of fundraising in an era of
contribution limits require candidates to seek a broad base of small contributors — a
democratic, but time-consuming, expensive process — or to seek ever-larger contributions
from small groups of wealthy contributors. It has been argued that neither wealthy
candidates nor negative campaigning are new or increasing phenomena but merely that better
disclosure and television’s prevalence make us more aware of them. Finally, better-funded
candidates do not always win, as some recent elections show.
PACs and Other Sources of Campaign Funds. Issues stemming from rising
election expenses were, for much of the past two decades, linked to substantial candidate
reliance on PAC contributions. The perception that fundraising pressures might lead
candidates to tailor their appeals to the most affluent and narrowly “interested” sectors raised
perennial questions about the resulting quality of representation of the whole society. The
role of PACs, in itself and relative to other sources, became a major issue. In retrospect,
however, it appears that the issue was really about the role of interest groups and money in
elections, PACs being the most visible vehicle thereof. As discussed below, the PAC issue
per se has seemed greatly diminished by recent events, while concerns over interest group
money through other channels have grown.
Through the 1980s, statistics showed a significant increase in PAC importance. From
1974 to 1988, PACs grew in numbers from 608 to a high of 4,268, in contributions to House
and Senate candidates from $12.5 million to $147.8 million (a 400% rise in constant dollars),
and in relation to other sources from 16% of congressional campaign receipts to 34%. While
PACs remain a considerable force, data show a relative decline in their role since 1988: the
percentage of PAC money in total receipts dropped to 30% in 2002; PAC numbers dropped
to 4,040 in 2004; contributions to candidates rose to $274.3 million in 2002; and, after
individual giving had been declining as a component (vis-à-vis PACs), some leveling off has
occurred, with individuals giving 65% of Senate and 49% of House receipts in 2002, for
example.
Despite aggregate data on the relative decline of PACs, they still provide a considerable
share of election financing for various subgroups. For example, in 2002, House candidates
got 36% of their funds from PACs; House incumbents received 44%. To critics, PACs raise
troubling issues in the campaign financing debate: Are policymakers beholden to special
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interests for election help, impairing their ability to make policy choices in the national
interest? Do PACs overshadow average citizens, particularly in Members’ states and
districts? Does the appearance of quid pro quo relationships between special interest givers
and politician recipients, whether or not they actually exist, seriously undermine public
confidence in the political system?
PAC defenders view them as reflecting the nation’s historic pluralism, representing not
a monolithic force but a wide variety of interests. Rather than overshadowing individual
citizens, these observers see them merely as groups of such citizens, giving voice to many
who were previously uninvolved. PACs are seen as promoting, not hindering, electoral
competition, by funding challengers in closely contested races. In terms of influencing
legislative votes, donations are seen more as rewards for past votes than as inducements to
alter future ones. Defenders also challenge the presumed dichotomy between special and
national interest, viewing the latter as simply the sum total of the former. PACs, they argue,
afford clearer knowledge of how interest groups promote their agendas, particularly
noteworthy in light of the flood of unregulated and undisclosed money since 1996.
Competitiveness in Elections. Many view the campaign finance system in terms
of a general imbalance in resources between incumbents and challengers, as evidenced by
respective spending ratios of more than 3.5:1 and 2:1 in recent House and Senate elections.
In 2002, there was a closer ratio in the House, with an average expenditure of $848,000 for
an incumbent vs. $261,000 for a challenger — a 3.2 to 1 ratio, while the average Senate
incumbent’s $4.5 million exceeded the average challenger’s $2.9 million by 1.6 to 1.
Incumbents’ generally easier access to money is often seen as the real problem, not the
aggregate amounts spent by all candidates.
Those concerned about competitiveness also view the PAC issue through this lens.
With some 73% of PAC funds going to incumbents in 2002, the question of PACs “buying
access” with those most likely to be elected is seen as a more serious problem than the
generally high amounts of aggregate PAC giving. But others dispute that the problem is
really an incumbency one or that electoral competition should be the main goal of reform.
After all, there is a fair degree of turnover in Congress (through defeats, retirements, etc.),
and the system does allow changed financing patterns with sometimes unexpected results,
as it did in 1994. Aggregate incumbent-challenger disparities may be less meaningful, it is
noted, than the disparities in hotly contested or open races.
Today’s Paramount Issues:
Perceived Loopholes in Current Law
Interest has intensified, especially since 1996, over campaign finance practices that have
been seen by some as undermining the law’s contribution and expenditure limits and its
disclosure requirements. Although these are practices that may be legal, they have been
characterized as “loopholes” through which electoral influence is sought by spending money
in ways that detract from public confidence in the system and that are beyond the scope
intended by Congress. Some of the prominent practices have been bundling, soft money,
independent expenditures, issue advocacy, and, most recently, election-related activities by
groups operating under section 527 of the Internal Revenue Code.
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Bundling. This involves collecting checks for (and made payable to) a specific
candidate by an intermediate agent. A PAC or party may thus raise money far in excess of
what it can legally contribute and receive recognition for its endeavors by the candidate.
Soft Money. This term generally is used to refer to money that may indirectly
influence federal elections but is raised and spent outside the purview of federal laws and
would be illegal if spent directly on a federal election. The significance of soft money, prior
to enactment of the Bipartisan Campaign Reform Act of 2002 (BCRA), stemmed from
several factors: (1) many states permit direct union and corporate contributions and
individual donations in excess of $25,000 in state campaigns, all of which are prohibited in
federal races; (2) under the 1979 FECA Amendments and FEC rulings, such money could
be spent by state and local parties in large or unlimited amounts on grassroots organizing and
voter drives that could benefit all party candidates; and (3) publicly-funded presidential
candidates may not spend privately raised money in the general election. In recent
presidential elections through 2000, national parties waged extensive efforts to raise money
for their state affiliates, partly to boost the national tickets beyond what could be spent
directly. The data for 2000 showed that some $495 million in soft money was raised by the
major parties, nearly double the $262 million raised in 1996.
Independent Expenditures. The 1976 Buckley ruling allowed unlimited spending
by individuals or groups on communications with voters to expressly support or oppose
clearly identified federal candidates, made without coordination or consultation with any
candidate. Independent expenditures totaled $11.1 million in 1992, $22.4 million in 1996,
and $25.6 million in 2000. These expenditures may hinder a candidate’s ability to compete
with an opponent and respond to the charges made by outside groups. They may also impair
a sense of accountability between a candidate and voters, and many question whether some
form of unprovable coordination may often occur in such cases.
Issue Advocacy. Although federal law regulates expenditures in connection with
federal elections, it has generally used a fairly narrow definition for what constitutes such
spending. Prevailing judicial interpretation of Supreme Court precedent, both before and
arguably since BCRA, has created a conundrum by permitting regulation of only those
communications containing express advocacy, that is, communications containing explicit
terms urging the election or defeat of clearly identified federal candidates. By avoiding such
terms, groups arguably can promote their views and issue position in reference to particular
elected officials, without triggering the disclosure and source restrictions of the FECA. Such
activity, known as issue advocacy, is widely perceived as having the intent of bolstering or
detracting from the public image of officials who are also candidates for office. In 1996, an
estimated $135 million was spent on issue advocacy, rising to between $275 and $340
million in 1998, and to $509 million in 2000 (although these data do not distinguish between
campaign-related and non-campaign-related communications). Also, groups ranging from
labor unions to the Christian Coalition promote their policy views through voter guides,
which present candidates’ views on issues in a way that some see as helpful to some
candidates and harmful to others, without meeting the standards for FECA coverage.
527 Political Organizations. In the years leading up to enactment of BCRA and
in the wake of its major provisions being upheld by the Supreme Court in December 2003,
attention has been increasingly focused on activity by interest groups operating outside the
regulatory framework of federal election law. Of particular interest has been groups
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operating under section 527 of the Internal Revenue Code, which provides tax-exempt status
to organizations it defines as political. In 2000, some groups engaged in election-related
issue advocacy aroused controversy when it was revealed that they were operating under
section 527 of the IRC while not being regulated under the FECA. At that time, BCRA was
still under consideration, and Congress was enmeshed in the thorny issue of regulating
activity that was not express advocacy. Rather than short-circuit that debate and begin yet
another on the also complicated issue of differing definitions of political organization under
the IRC and political committee under the FECA, Congress addressed the issue by simply
requiring disclosure to the IRS by groups with tax-exempt 527 status.
In 2002, Title II of BCRA addressed the express advocacy issue, but only with regard
to broadcast advertisements in the period just prior to federal elections. BCRA was silent
regarding interest groups’ involvement in such other election-related activities as public
communications through non-broadcast methods, broadcasts prior to the last 30 days before
a primary or 60 days before a general election, voter identification, and get-out-the-vote and
registration drives. These activities loom particularly large in the wake of BCRA’s
prohibition on national political party use of non-federally-permissible funds (i.e., soft
money) to pay for voter mobilization activities. With more than $400 million reported as
being raised and spent in the 2004 elections by groups with section 527 status, public
attention has now shifted to these new patterns of electioneering, raising questions as to
whether requiring disclosure to the IRS is sufficient.
Policy Options
The policy debate over campaign finance laws proceeds from the philosophical
differences over the underlying issues discussed above, as well as the more practical,
logistical questions over the proposed solutions. Two primary considerations frame this
debate. What changes can be made that will not raise First Amendment objections, given
court rulings in Buckley and other cases? What changes will not result in new, unforeseen,
and more troublesome practices? These considerations are underscored by the experience
with prior amendments to FECA, such as PAC growth after the 1974 limits on contributions.
Just as the overriding issues centered until recently around election costs and funding
sources, the most prominent legislation long focused on controlling campaign spending,
usually through voluntary systems of public funding or cost-reduction benefits, and on
altering the relative importance of various funding sources. Some saw both concepts
primarily in the context of promoting electoral competition, to remedy or at least not
exacerbate perceived inequities between incumbents and challengers. Increasingly since the
mid-1980s, and particularly since the 1996 elections, concerns over perceived loopholes that
undermine federal regulation have led to proposals to curb such practices. Conversely, some
proposals have urged less regulation, on the ground that it inherently invites circumvention,
while still other proposals have focused exclusively on improving or expanding disclosure.
Proposals on Enduring Issues
Campaign Spending Limits and Government Incentives or Benefits. Until
the late 1990s, the campaign reform debate often focused on the desirability of campaign
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spending limits. To a great extent, this debate was linked with public financing of elections.
The coupling of these two controversial issues stemmed from Buckley’s ban on mandatory
spending limits, while allowing voluntary limits, with adherence a prerequisite for subsidies.
Hence the notion arose in the 1970s that spending limits must be tied to public benefits,
absent a constitutional amendment.
Public funding not only might serve as an inducement to voluntary limits, but by
limiting the role of private money, it is billed as the strongest measure toward promoting the
integrity of and confidence in the electoral process. Furthermore, it could promote
competition in districts with strong incumbents or one-party domination. Public financing
of congressional elections has been proposed in nearly every Congress since 1956 and has
passed in several Congresses. The nation has had publicly funded presidential elections since
1976, and tax incentives for political donations were in place from 1972 to 1986.
Objections to public financing are numerous, many rooted in philosophical opposition
to funding elections with taxpayer money, supporting candidates whose views are antithetical
to those of many taxpayers, and adding another government program in the face of some
cynicism toward government spending. The practical objections are also serious: How can
a system be devised that accounts for different natures of districts and states, with different
styles of campaigning and disparate media costs, and is fair to all candidates — incumbent,
challenger, or open-seat, major or minor party, serious or “longshot?”
A major challenge to spending limit supporters has been how to reduce, if not eliminate,
the role of public funding in their proposals. Although spending limits may have wide public
support, most evidence suggests far less support for public financing. In the 105th Congress,
the principal reform bills debated on the floor contained neither campaign spending limits
nor public funding, reflecting not only the overriding concerns over soft money and issue
advocacy but also the changed political climate since the 1970s.
Stemming from the spending limits debate have been proposals to lower campaign
costs, without spending limits. Proposals for free or reduced rate broadcast time and postage
have received some notable bipartisan support. Such ideas seek to reduce campaign costs
and the need for money, without the possibly negative effects of arbitrary limits.
Changing the Balance Among Funding Sources. Until the late 1990s, most
proposed bills sought, at least in part, to curb PACs’ perceived influence, either directly,
through a ban or reduced contribution limits, or indirectly, through enhancing the role of
individuals and parties. Prior to enactment of the Bipartisan Campaign Reform Act of 2002
(BCRA), individuals could give $1,000 per candidate, per election, while most PACs (if they
are “multicandidate committees”) could give $5,000 per candidate, increasing their ability
to assist candidates, and without an aggregate limit such as that affecting individuals.
Three chief methods of direct PAC curbs were prominent in proposals advanced
through the mid-1990s: banning PAC money in federal elections; lowering the $5,000 limit;
and limiting candidates’ aggregate PAC receipts. These concepts were included, for
example, in all of the bills that the House and Senate voted on in the 101st -104th Congresses.
Although support for such proposals was fueled by a desire to reduce the perceived role of
interest groups, each proposal had drawbacks, such as constitutional questions about limiting
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speech and association rights and the more practical concern over devaluation of the $5,000
limit by inflation since it was set in 1974.
Yet another concern raised during that period was the potential encouragement for
interest groups to shift resources to “independent” activities, which are less accountable to
voters and more troublesome for candidates in framing the debate. Furthermore, independent
advertisements were often marked by negativity and invective. If such prospects gave pause
to lawmakers during the 1980s, the surge of financial activity outside the framework of
federal election law since 1996 has largely dampened attempts to further limit PACs. The
major reform bills in the 105th -107th Congresses contained no further PAC restrictions.
Partly because of this problem, both before and after 1996, many have looked to more
indirect ways to curb PACs and interest groups, such as raising limits on individual or party
donations to candidates. These increases have also been proposed on a contingency basis to
offset such other sources as wealthy candidates spending large personal sums on their
campaigns. As enacted in 2002, BCRA provided both for higher individual contribution
limits in general and provisional increases in both individual and party limits to assist
candidates opposed by free-spending, wealthy opponents. While higher limits might
counterbalance PACs and other groups and offset effects of inflation, opponents observed
that few Americans could afford to give even $1,000, raising age-old concerns about “fat cat”
contributors.
House Republicans have pushed to boost the role of individuals in candidates’ states or
districts, to increase ties between Members and constituents. By requiring a majority of
funds to come from the state or district (or prohibiting out-of-state funds), supporters expect
to indirectly curb PACs, typically perceived as out-of-state, or Washington, influences.
Support also exists for increasing or removing party contribution and coordinated
expenditure limits, based on the notions that the party role can be maximized without leading
to influence peddling and on strengthening party ties to facilitate effective policymaking.
Opponents note that many of the prominent allegations in 1996 involved party-raised funds.
Promoting Electoral Competition. Proposals to reduce campaign costs without
establishing expenditure limits are linked to broader concerns about electoral competition.
Political scientists tend to view spending limits as giving an advantage to incumbents, who
begin with high name recognition and perquisites of office (e.g., staff, newsletters).
Challengers often spend money just to build name recognition. Limits, unless high, may
augment an institutional bias against challengers or unknown candidates. (Conversely,
public funding could help challengers to compete with well-funded incumbents.)
Many of those concerned about electoral competition consequently have opposed
spending limits, although they are philosophically opposed to public funding. These
individuals tend to favor more “benign” forms of regulation, such as allowing higher limits
on party contributions to challengers in early stages, or, generally, allowing greater latitude
in challengers’ ability to raise needed funds. At the very least, these individuals insist that
changes not be made that, in their view, exacerbate perceived problems.
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Congressional Efforts to Close Perceived Loopholes in Federal
Election Law
Proposals have increasingly addressed perceived loopholes in the FECA, and indeed this
area was the primary focus of recent reform efforts, culminating in enactment of BCRA in
the 107th Congress. This debate underscored a basic philosophical difference between those
who favored and opposed government regulation of campaign finances. Opponents said that
regulation invited attempts at subterfuge, that interested money would always find its way
into elections, and that the most one could do was see that it is disclosed. Proponents argued
that while it was hard to restrict money, it was a worthwhile goal, hence one ought to
periodically fine-tune the law to correct “unforeseen consequences.” Proposed “remedies”
stemmed from the latter view, i.e., curtail the practices as they arise.
Bundling. Most proposals in this area, which has been less an issue now than in prior
years, would count contributions raised by an intermediary toward both the donor’s and
intermediary’s limit. Hence, an agent who had reached the limit could not raise additional
funds for that candidate. Proposals differ as to specific agents who could continue this
practice (e.g., whether to ban bundling by party committees or by all PACs).
Independent Expenditures. Short of a constitutional amendment to allow
mandatory limits on campaign spending (as the Senate debated in 1988, 1995, 1997, 2000,
and 2001), most proposals have aimed to promote accountability. They have sought to
prevent indirect consultation with candidates and to ensure that the public knows these
efforts are not sanctioned by candidates. Many bills have sought to tighten definitions of
independent expenditure and consultation and to require more prominent disclaimers on ads.
Many spending limits/ benefits bills have provided subsidies so those attacked in such ads
may adequately respond.
Soft Money. This issue was one of the key issues addressed by BCRA. Title I
provided that national parties and federal candidates or officials, and entities they directly or
indirectly establish, finance, maintain, or control, may not solicit, receive, direct, transfer, or
spend funds not raised under the limits, prohibitions, and reporting requirements of federal
law (i.e., soft money). State and local political parties, and entities they directly or indirectly
establish, finance, maintain, or control, may not spend soft money on “federal election
activities.” The act’s so-called Levin amendment, however, allowed for some use of soft
money under certain conditions for specified grassroots activities by state and local parties.
Issue Advocacy. The other key issue addressed by BCRA pertained to issue
advocacy. The challenge to Congress in addressing this practice, a form of soft money,
involved broadening the definition of what constituted federal election-related spending. A
1995 FEC regulation had offered such a definition, using a “reasonable person” standard,
but this was struck down by a 1st Circuit federal court in 1996; this decision was later upheld
by an appeals court but was at variance with an earlier 9th Circuit ruling. The FEC was
reluctant to enforce the regulation pending further judicial or legislative action. Earlier
versions of what became BCRA (the Shays-Meehan bill, as passed in the 105th and 106th
Congresses) sought to codify a definition of “express advocacy” that allowed a
communication to be considered as a whole, in context of such external events as timing, to
determine if it was election-related. In the final analysis, however, BCRA adopted a
narrower approach, in large measure to enhance its chances of withstanding judicial scrutiny,
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by incorporating into Title II language initially proposed by Senators Snowe and Jeffords.
This title regulates election-related issue advocacy by creating a new term in federal election
law, electioneering communications — political advertisements that refer to clearly identified
federal candidates, broadcast within 30 days of a primary or 60 days of a general election.
Generally, they may not be funded from union or corporate treasuries, and disbursements
of over $10,000 and donors of $1,000 or more must be disclosed.
527 Activity. Efforts to address the activity of 527 political organizations that is
outside the regulatory framework of federal election law are underway on several fronts: in
the courts, the FEC, and in Congress. Thus far, one legislative proposal has emerged
measure to apply federal election law regulation to such groups involved in federal election-
related activities, offered near the end of the 108th Congress by BCRA sponsors as the 527
Reform Act of 2004 (H.R. 5127 and S. 2828). That measure would add to the definition of
political committee that its major purpose be the nomination or election of one or more
candidates and declare that political organizations under section 527 of Internal Revenue
Code have the major purpose of influencing elections unless they have annual receipts of less
than $25,000 or are exclusively devoted to non-federal elections (or are state or local party
committees). Those exemptions would not apply if the 527 spends money for public
communications that promote, support, attack, or oppose a clearly identified federal
candidate in that election cycle. Sponsors have indicated their intentions to offer the measure
early in the 109th Congress as well.
Legislative Action in Congress
Congress’ consideration of campaign finance reform has steadily increased since 1986,
when the Senate passed the PAC-limiting Boren-Goldwater Amendment, marking the first
campaign finance vote in either house since 1979 (no vote was taken on the underlying bill).
With Senate control shifting to Democrats in 1986, each of the next four Congresses
saw intensified activity, based on Democratic-leadership bills with voluntary spending limits
combined with inducements to participation, such as public subsidies or cost-reduction
benefits. In the 100th Congress, Senate Democrats were blocked by a Republican filibuster.
In the 101st - 103rd Congresses, the House and Senate each passed comprehensive bills based
on spending limits and public benefits; the bills were not reconciled in the 101st or 103rd,
while a conference version achieved in the 102nd was vetoed by President Bush.
With Republicans assuming control in the 104th Congress, neither chamber passed a
reform bill. A bipartisan bill based on previous Democratic-leadership bills was blocked by
filibuster in the Senate, while both Republican- and Democratic-leadership bills — with
starkly different approaches — failed to pass in the House.
In the 105th Congress, reform supporters succeeded in passing the Shays-Meehan bill
in the House (H.R. 2183, as amended). Senate sponsors of its companion McCain-Feingold
measure (S. 25, as revised) failed on three occasions to break a filibuster in opposition,
however, and no vote occurred on the bill.
In the 106th Congress, the House again passed the Shays-Meehan bill (H.R. 417).
Supporters of the companion McCain-Feingold bill initially introduced S. 26, much the same
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bill as its final version in the 105th Congress. They later introduced a much narrower version
(S. 1593), focusing largely on party soft money but dropping the issue advocacy and other
provisions. This version was debated in October 1999 but failed to break a filibuster in
opposition. Reform supporters succeeded, however, in enacting legislation to require
disclosure by tax-exempt political organizations under Section 527 of the Internal Revenue
Code.
In the 107th Congress, the long stalemate over campaign finance reform was broken
when Congress enacted the Bipartisan Campaign Reform Act of 2002 (BCRA). The Senate
passed S. 27 (McCain-Feingold) on April 2, 2001 by a vote of 59-41, following a two-week
debate which added 22 amendments on the floor and rejected 16 others. The Senate also
defeated S.J.Res. 4 (Hollings-Specter), a constitutional amendment to allow mandatory
campaign spending limits, by a 40-56 vote on March 26, 2001. While Senate passage
marked a major breakthrough, the measure appeared to be stalled in the House in 2001, when
the House rejected (by 203-228) the proposed rule for consideration on July 12. Supporters
of Shays-Meehan filed a discharge petition to force reconsideration and, on January 24, 2002,
secured the last four needed signatures. On February 13, 2002, the House passed H.R. 2356
(Shays-Meehan) by a 240-189 vote, after including four perfecting amendments and rejecting
two substitute and eight perfecting amendments. On March 20, the Senate passed H.R. 2356
by a 60-40 vote, and President Bush signed the measure into law on March 27, as P.L. 107-
155. In a related action, Congress enacted P.L. 107-276, to relieve 527 tax-exempt political
organizations that operate at the state and local levels from reporting requirements enacted
in 2000 and to improve IRS dissemination of federally filed reports under that law.
108th Congress
As the 108th Congress began, the political community was adjusting to the new law that
took effect on November 6, 2002, while carefully watching the courts for their rulings on the
new Act’s constitutionality. Supporters of that act are continuing their efforts in this
Congress through such initiatives as replacing the Federal Election Commission with a new
enforcement agency, providing political candidates and parties with broadcast time for free
or at reduced rates, and reforming the public funding system in presidential elections. In all,
30 bills were introduced in the 108th Congress (21 in the House and nine in the Senate) to
further change the nation’s campaign finance laws.
On May 2, 2003, the U.S. District Court for the District of Columbia issued its opinion
in McConnell v. FEC, 251 F. Supp. 2d 176 (Civ. No. 02-582). The three-judge panel struck
down the blanket prohibition on the raising of soft money by national parties and the use of
soft money by state and local parties, but retained the ban only for public communications
that mention clearly identified federal candidates. The panel also retained the prohibition on
the raising of soft money by federal candidates and officials. Regarding electioneering
communications, the panel struck down the regulation of all broadcast ads that refer to a
clearly identified federal candidate in the last 30 days of a primary or 60 days of a general
election, but upheld a portion of the secondary definition of electioneering communication,
thus allowing regulation of advertisements that support or oppose federal candidates,
regardless of when they are disseminated.
On May 19, 2003, the District Court issued a stay to its May 2 ruling (251 F. Supp. 2d
248), thus keeping the Bipartisan Campaign Reform Act of 2002 in effect as enacted,
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pending review by the Supreme Court, which held oral arguments on September 8, 2003.
On December 10, 2003, the Supreme Court, in McConnell v. FEC (549 U.S. 93), upheld the
constitutionality of key provisions of BCRA, dealing with soft money and electioneering
communications.
The House Administration Committee has begun an examination of the role of tax-
exempt 527 political organizations since enactment of the Bipartisan Campaign Reform Act
of 2002. On November 20, 2003, the Committee authorized its Chairman to issue subpoenas
to compel testimony from several groups that had declined to testify in its scheduled hearing
that day. On May 20, 2004, the Committee held an oversight hearing on the FEC and the
527 rulemaking process. That hearing was prompted by the agency’s May 13 postponement
of a decision on a proposed regulation to redefine “political committee” in a way that would
include activity by many 527 groups currently in operation. The 527 issue was also
addressed on March 10 at a hearing by the Senate Rules and Administration Committee,
which, on July 14, also held an oversight hearing on the FEC. On September 22, 2004,
supporters of BCRA introduced legislation (H.R. 5127 and S. 2828) to apply federal election
law regulation to such groups involved in federal election-related activities.
109th Congress
In the wake of the 2004 elections, when more than $400 million was raised and spent
by 527 organizations outside of federal election law regulation, the 109th Congress plans to
examine the role of 527 groups in federal elections. On March 8, the Senate Rules and
Administration Committee held a hearing on S. 271 (McCain-Feingold-Lott), a bill to require
that 527s involved in federal elections comply fully with federal election law, and on April
27, it voted to report the bill, as amended in committee. The House Administration
Committee held a hearing April 20 on regulation of 527 organizations, focused on H.R. 513
(Shays-Meehan), the companion to S. 271, and H.R. 1316 (Pence-Wynn). The Committee
plans a markup of H.R. 1316 on May 26. In sharp contrast with the bill reported in the
Senate, H.R. 1316 seeks to address the 527 issue indirectly, by loosening restrictions on
funding sources within the FECA. By so doing, proponents expect that there would be less
of an incentive for political money to flow to 527 groups operating outside the framework
of the FECA. As of May 18, 2005, 23 bills (20 in the House and 3 in the Senate) have been
introduced in the 109th Congress to change federal campaign finance law.
LEGISLATION
H.R. 513 (Shays-Meehan) — 527 Reform Act of 2005. Includes in the definition of
political committee any 527 organization, unless it (1) has annual gross receipts of less than
$25,000, (2) is a state or local party committee or a political committee of a state or local
candidate, (3) is exclusively devoted to non-federal elections or non-election activity, or (4)
exists solely to pay certain administrative expenses or expenses of a qualified newsletter; the
last two exemptions do not apply if the 527 spends money for public communications that
promote, support, attack, or oppose a clearly identified federal candidate within one year of
the general election in which that candidate is seeking office or for any voter registration or
mobilization effort in connection with an election in which a candidate for federal office is
on the ballot; requires political committees (but not candidate or party committees) that make
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disbursements for voter mobilization activities or public communications that affect both
federal and non-federal elections to generally use at least 50% hard money from federal
accounts to finance such activities (but requires that 100% of public communications and
voter drive activities that refer to only federal candidates be financed with hard money from
a federal account, regardless of whether communication refers to a political party); allows
contributions to non-federal accounts making allocations under this provision only by
individuals in amounts of up to $25,000 per year; states that this act shall have no bearing
on FEC regulations, on any definitions of political organizations in Internal Revenue Code,
or on any determination of whether a 501(c) tax-exempt organization may be a political
committee under the FECA; provides special expedited judicial review procedures, similar
to those in BCRA, for a challenge to the act on constitutional grounds, and allows any
Member to bring or intervene in any such case. Introduced February 2, 2005; referred to
Committee on House Administration.
H.R. 1316 (Pence-Wynn) — 527 Fairness Act of 2005. Removes aggregate limit on
contributions by individuals; removes limit on party coordinated expenditures; provides for
indexing of contributions by and to multicandidate political committees (PACs); removes
“targeted communications” exception to exemption of 501(c)(4) and 527 organizations from
ban on electioneering communications by unions and corporations, i.e., allows 501(c)(4) and
527 corporations to make electioneering communications with funds donated solely by
individuals who are citizens or permanent resident aliens; extends same authority granted to
501(c)(4) organizations with regard to electioneering communications to 501(c)(5) and
501(c)(6) organizations (typically labor unions and trade associations); states that
expenditures made by 501(c)(4), (c)(5), or (c)(6) organizations shall not affect their tax status
under Internal Revenue Code; allows unions, corporations, and trade associations to solicit
restricted classes by means other than mail; removes requirements that trade association
solicitations of member corporations’ restricted classes have prior approval of corporation
and that no more than one trade association may solicit such classes in a calendar year;
loosens restrictions on state and local parties by allowing use of soft money for voter
registration activities in the last 120 days of a federal election and for sample ballots in
elections with both federal and state or local candidates on the ballot, if the sample ballot
lists every candidate for federal office. Introduced March 15, 2005; referred to Committee
on House Administration.
S. 1053 (McCain-Feingold-Lott) — 527 Reform Act of 2005. [amendments adopted in
Committee in italics] 527s. Includes in the definition of political committee any 527
organization, unless it: has annual gross receipts of less than $25,000; a political committee
of a state or local party or candidate; exists solely to pay certain administrative expenses or
expenses of a qualified newsletter; is comprised solely of state or local officeholders and
candidates whose voter drive activities refer to state and local candidates but not federal
candidates and parties; is solely involved in voter drive activities, including public
communications devoted to such, but does not engage in broadcast, cable, or satellite
communications (Schumer amendment); or is exclusively devoted to elections where no
federal candidate is on ballot, or to non-federal elections, ballot issues, or to selection of non-
elected officials; last exemption does not apply if the 527 spends more than $1,000 for:
public communications that promote, support, attack, or oppose a clearly identified federal
candidate within one year of the general election in which that candidate is seeking office;
or for any voter drive activity conducted by a group in a calendar year, unless: (1) sponsor
confines activity solely within one state; (2) non-federal candidates are referred to in all voter
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drive activities and no federal candidate or party is referred to in any substantive way; (3) no
federal candidate or officeholder or national party official or agent is involved in the
organization’s direction, fundraising, or disbursements; and (4) no contributions are made
by the group to federal candidates; requires political committees (but not candidate or party
committees) that make disbursements for voter mobilization activities or public
communications that affect both federal and non-federal elections to generally use at least
50% hard money from federal accounts (or more, if FEC so determines) to finance such
activities (but requires that 100% of public communications and voter drive activities that
refer to only federal candidates be financed with hard money from a federal account,
regardless of whether communication refers to a political party); allows contributions to non-
federal accounts making allocations under this provision only by individuals in amounts of
up to $25,000 per year (and states that funds in non-federal accounts are not otherwise
subject to FECA); states that this act shall have no bearing on FEC regulations, on any
definitions of political organizations in Internal Revenue Code, or on any determination of
whether a 501(c) tax-exempt organization may be a political committee under FECA;
provides special expedited judicial review procedures, similar to those in BCRA, for a
challenge to the act on constitutional grounds, and allows any Member to bring or intervene
in any such case;
Broadcast rates. Makes TV, cable, and satellite lowest unit rate broadcast time non-
preemptible, with rates based on comparison with full prior year, and requires such rates
be available to national parties buying time on behalf of candidates (Durbin amendment);
PACs. Increases limits on contributions to and by PACs from $5,000 to $7,500;
increases limit on PAC contributions to national parties from $15,000 to $25,000; indexes
these limits; allows leadership PACs to transfer unlimited funds to national party
committees; eliminates twice-a-year limit on solicitations by unions and corporations of
their restricted classes; eliminates requirement that trade associations must get prior
approval by member corporations before solicitations may be made to their restricted
classes and that corporations may grant such approval to only one association in a year
(Bennett amendment);
Other FECA provisions. Provides that communications on the Internet are not
regulated by FECA; indexes limit on contributions by individuals to state and local parties
(now $10,000); increases annual contribution and expenditure threshold for determining
political committee status from $1,000 ($5,000 for local party committees) to $10,000
(Bennett amendment).
Original bill ordered reported April 27, 2005 by Committee on Rules and
Administration (in lieu of S. 271, which was approved that day by Committee, as amended).
Placed on legislative calendar May 17, 2005.
FOR ADDITIONAL READING
CRS Issue Brief IB98025. Campaign Finance: Constitutional and Legal Issues of Soft
Money, by L. Paige Whitaker.
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CRS Report RL31402. Bipartisan Campaign Reform Act of 2002: Summary and
Comparison with Previous Law, by Joseph E. Cantor and L. Paige Whitaker.
CRS Report RS21511. Campaign Finance: Brief Overview of McConnell v. FEC, by L.
Paige Whitaker.
CRS Report 97-1040. Campaign Financing: Highlights and Chronology of Current Federal
Law, by Joseph E. Cantor.
CRS Report RS21693. Campaign Finance Law: The Supreme Court Upholds Key
Provisions of BCRA in McConnell v. FEC, by L. Paige Whitaker.
CRS Report RL32650. Campaign Finance Legislation in the 108th Congress, by Joseph E.
Cantor.
CRS Report 98-282. Campaign Finance Reform: A Legal Analysis of Issue and Express
Advocacy, by L. Paige Whitaker.
CRS Report RL30669. Campaign Finance Regulation Under the First Amendment: Buckley
v. Valeo and Its Supreme Court Progeny, by L. Paige Whitaker and Christopher A.
Jennings.
CRS Report RL30877. Characteristics of and Reporting Requirements for Selected
Tax-Exempt Organizations, by Marie B. Morris.
CRS Report RL30582. 527 Organizations: How the Differences in Tax and Election Laws
Permit Certain Organizations to Engage in Issue Advocacy without Public Disclosure
and Proposals for Change, by Marie B. Morris.
CRS Report RS21725. IRS Guidelines for Political Advocacy by Exempt 501(c)
Organizations: Revenue Ruling 2004-6, by Erika Lunder.
CRS Report RS21716. Political Organizations Under Section 527 of the Internal Revenue
Code, by Erika Lunder.
CRS Report RL32786. The Presidential Election Campaign Fund and Tax Checkoff:
Background and Current Issues, by Joseph E. Cantor.
CRS Report 97-618. The Use of Labor Union Dues for Political Purposes: A Legal
Analysis, by L. Paige Whitaker.
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